Dividing an ongoing business poses certain challenges in a divorce. If both parties are actively running the business, they must decide who will keep the business after the divorce. Some people agree to continue on as co-owners, but that is rare. Usually, one of the parties keeps the business and buys out the other party. If you and your spouse can’t agree on who keeps the business, the judge will decide, usually awarding the business to the party more involved with ongoing operations. Sometimes people agree to sell the business and divide the proceeds.
The party who keeps the business will need to pay the other party their share of the value of the business. This principle also applies to professional practices, such as a medical, dental, or law practice. When the ongoing business or practice is profitable and owns assets, lawyers often hire a business evaluator to value the business. A business evaluator will consider the level of profitability of the business, the value of its assets, and its overall economic circumstances. Generally, more-profitable businesses have a higher value. The business evaluator will render an opinion concerning the value of the business. Often, both parties hire their own business evaluators as expert witnesses. Trials are often necessary when both parties' experts disagree on value and they cannot meet somewhere in the middle. In that event the judge will listen to the testimony of both experts and determine the business value based upon the evidence presented.
Once the value of the business is determined, either by agreement or by the judge, arrangements need to be made to pay the nonowning spouse his or her share. Assume a business has a value of $1,000,000. If the owner has sufficient assets to pay off the spouse at the time of the divorce, the judge will usually order the spouse keeping the business to pay the other spouse his or her share at the time of the divorce ($500,000 in this example). If sufficient funds are not available, the judge may allow the business owner to pay the spouse in installments over a period of time. For example, the judge might make the owner spouse pay annual payments $100,000, securing the debt with business assets to ensure payment.
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